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Engineering Management Field Project
Operating Plan for “Helios”: A Builder and Manufacturer of Energy
Efficient Homes.
By
Leonidas H. Cossyphas
Spring Semester, 2006
An EMGT Field Project report submitted to the Engineering Management Program and the Faculty of the Graduate School of The University of Kansas
in partial fulfillment of the requirements for the degree of Master’s of Science.
________________________________ Herbert Tuttle Committee Chairperson
________________________________ Robert Zerwekh Committee Member
________________________________ Linda Miller Committee Member
Date Accepted: __________________________________
- 1 -
EMGT 835
Field Project
Operating Plan for “Helios”: A Builder and Manufacturer of Energy
Efficient Homes.
Date: April 24, 2006 Submitted By: Leonidas H. Cossyphas
Phone: 001 30 210 620 2279 Email: [email protected]
Committee Chairperson Professor Herbert Tuttle
Committee Members Professor Linda Miller
Dr. Robert Zerwekh
- 2 -
Acknowledgements
Special thanks are extended to the City of Kansas City and the States of Missouri and
Kansas for their excellent job in making valuable information readily available. The
wealth of information and references made available by the U.S. Small Business
Administration concerning various aspects of starting and operating a business in the
United States was of enormous help in the preparation of this report. In addition, thanks
are extended to the U.S. Census Bureau and the Bureau of Economic Analysis for their
extremely important work in maintaining vital statistics that help us develop business
plans and reach sound business decisions. Information gathered through the U.S.
Department of Energy concerning alternative energy uses and information on energy
efficiency provided by the U.S. Environmental Protection Agency was vital to this
project.
I would like to thank my parents for always encouraging advanced education and the rest
of my family for patting me on the back as I went along. I would also like to thank Miss
M.G-O for being the person she is. I learned and gained a lot from being around a
brilliant, focused, overachieving and at the same time beautiful MBA graduate. Thanks
to her I now know what “the soul of genius” is.
Finally, I would like to thank my professors for their suggestions, patience, support and
encouragement in researching, compiling and revising this operating plan.
- 3 -
Abstract
The purpose of this project is to develop a comprehensive business operating plan for a
home building company that emphasizes and promotes the use of passive solar energy
systems and earth sheltering designs in its products. The Kansas City based firm will
concentrate on building energy efficient homes and prefabricated modules that can be
transported and erected quickly at a building site and become integral parts of the
structural and energy system of the completed residences. The scope of this project
includes the development of the financial analysis, market research, funding
requirements, competition analysis, marketing plan, and operations plan. Implementation
of the resulting business plan should produce a viable company that provides high quality
dependable services and products to the Midwestern homebuyer.
- 4 -
Table of Contents
Executive Summary......................................................................................................- 7 - Introduction.................................................................................................................- 12 - Company Description .................................................................................................- 16 - Industry Analysis of Home Builders .........................................................................- 20 - Target Market .............................................................................................................- 24 - Competition .................................................................................................................- 26 - Partners........................................................................................................................- 31 - Strategic Position and Risk ........................................................................................- 33 - SWOT Analysis ...........................................................................................................- 36 - Marketing ....................................................................................................................- 39 - Operations Plan...........................................................................................................- 49 -
Administrative.........................................................................................................- 49 - Technology Plan......................................................................................................- 52 - Engineering..............................................................................................................- 54 - Site Work/Field Operations ...................................................................................- 57 -
Exit Plan and Future Plans ........................................................................................- 60 - Funding ........................................................................................................................- 61 - Bibliography ................................................................................................................- 62 - References....................................................................................................................- 64 - Appendix A – Glossary...............................................................................................- 66 - Appendix B – Financial Statements ..........................................................................- 67 -
Income Statements ..................................................................................................- 68 - Cash Flow Statements.............................................................................................- 69 - Balance Sheets .........................................................................................................- 70 -
Appendix C - Figures and Tables ..............................................................................- 78 - Figure 1. Missouri & Kansas New Housing Permits. Source: Census Bureau. - 79 - Figure 2. Midwest Region New Housing Prices. Source: Census Bureau. ........- 79 - Figure 3. Projected Missouri and Kansas Energy Star® New Construction. ...- 80 - Figure 4. Drawing of Type 1 Module. ...................................................................- 81 - Figure 5. Drawing of Production Facility. ............................................................- 82 - Figure 6. First Year Cash Flows............................................................................- 83 - Figure 7. Second Year Cash Flows........................................................................- 83 - Figure 8. Five Year Sales and Profit Projections. ...............................................- 84 - Table 1. Cost of Participating in the Greater KC Area Home Show. ................- 85 - Table 2. Cost of Placing Advertisement in KC Star’s “House and Home”. ......- 86 - Table 3. Cost of listing and maintaining a company website..............................- 87 - Table 4. Module Weight Calculations...................................................................- 88 - Table 5. Form Production Cost Calculations. ......................................................- 89 - Table 6. Module Production Cost Calculations. ..................................................- 90 - Table 7. Module Transportation Cost Calculations. ...........................................- 91 - Table 8. Module Total Production Cost Calculations. ........................................- 91 - Table 9. Production Area Calculations.................................................................- 92 - Table 10. Production Rail Line Cost Calculations...............................................- 93 - Table 11. Average Historic Home Value Increases for Kansas and Missouri. .- 94 -
- 5 -
Table 12. Projected Midwest Home Values..........................................................- 94 - Table 13. Annual Professional Services Budget. ..................................................- 95 - Table 14. Annual Sales Projections. ......................................................................- 95 - Table 15. Annual Staffing Budget. ........................................................................- 96 - Table 16. Technology Budget.................................................................................- 97 -
Assumptions ................................................................................................................- 98 -
- 6 -
Executive Summary
The Company
“Helios Home Builders” is an energy efficient residential Home builder and
manufacturer. Above all it aims to build Energy Star® certified energy efficient homes
and modular solutions that utilize solar and earth sheltering construction techniques.
The Company’s Mission
“Helios Home Builders” aims to consistently provide its customers with quality energy
efficient homes that utilize passive solar energy solutions that reflect the company’s
commitment to responsible environmental policy. “Helios Home Builders” aims to do
this while treating its employees, vendors and customers with respect and rewarding its
shareholders at the same time.
Products and Services
“Helios Home Builders” aims to provide products and services for construction of
residential properties that utilize energy efficient techniques for heating and cooling of
the living spaces. Energy Star® homes are homes that are independently certified to be
at least 30 percent more efficient than homes built to the 1993 national Model Energy
Code. The efficiency improvements are typically achieved through a combination of
improvements such as building envelope upgrades, high performance windows, upgraded
heating, cooling and water heating equipment, controlled air infiltration and tight duct
- 7 -
systems. When combined with passive solar and earth sheltering, the effects on energy
efficiency can be even more dramatic. The company’s services will be provided as total
solutions that include the entire process of construction of a residence, from location and
lot selection to interior layout and landscaping. At the same time it is felt that the
company can effectively and most efficiently provide a prefabricated solution that can be
shipped to a construction site ready for use. The prefabricated solution is a modular unit
for utility areas such as kitchens and lavatories as pre-assembly of sections of the
buildings for quick erection and completion on the job site.
Marketing and Sales Strategy
“Helios Home Builders” aims to market and sell its product to all interested individual
homebuyers. The advantages of “Helios’s” homes will come from reductions in
construction durations, financing savings, improvements in comfort for homebuyers,
government tax credits, reduced life-cycle costs for the homes, increased property values
and finally, improved severe weather security features. It is estimated that the company’s
marketing strategy will be able to generate sales of 4 homes in the first year and reach a
level of 27 per year by the 5th year of the plan.
The Competition
The Construction industry and the home building industry in particular have always been
one of the easiest industries to enter into business in. Barriers to entry are low and the
market is consequently highly competitive. Information on builders of energy efficient
homes indicates that there are new builders and manufacturers entering the market in the
- 8 -
last twelve months and that the number of homes built to energy efficient standards by
the previously established builders is increasing at a quicker pace. This confirms in a
way the potential growth for this homebuilding trend. At the same time, market
penetration in the Kansas and Missouri markets is not at the levels achieved in other
states, a fact that presents an opportunity for “Helios” to act upon.
Target Market
The target market of individual homebuyers will be Kansas and Missouri residents
between the ages of 30 and 60 with a household income above $65,000/year. These
buyers will be technically adept, trend setting, socially responsible and environmentally
conscious smart shoppers. The target home price will be $243,700 which was the 2005
Midwestern median home price.
Management
The management team includes talented, focused, ambitious and highly motivated
individuals with a proven professional track record. They hold advanced academic
degrees in management and engineering and they have demonstrated their commitment to
success throughout their careers.
Operations
Company operations will begin at a leased production facility in Kansas City, Missouri.
During the first year, operations will be carried out with 1 administrative support person,
1 manager, 1 engineer and 2 production workers. By the end of the fifth year it is
- 9 -
projected that operations will require 2 administrative support persons, 1 manager, 4
engineers and 4 production workers to meet its obligations.
The production facility for the modules will be 5,000 square feet with an additional need
for 2 acres of land area for equipment and material storage, inventory storage and
parking. Production of each module will last 27 days and the production line will be able
to handle up to 4 modules indoors at any point in time. Under these parameters, the
production capacity will be 31 modules per year.
During the first year 4 modules will be utilized on company projects. Sales projections
indicate that by the 5th year of the planning period “Helios” will use 27 modules for its
projects.
Stage of Development
“Helios Home Builders” is not in operation as of yet. Current Plans are for the firm to
begin operations in January of 2007 and begin construction of homes during the 2007
construction season. Procedures and partnerships will be put in place that will allow for
an aggressive marketing and sales strategy to begin in January of 2007.
Financials
The first two years of operation will be capital intensive. In fact, most of the money
invested in the company will be used up in the first few months to finance production
facility equipment construction, computer hardware and software purchasing, form
construction, marketing and construction financing. Additional funding in the form of a
- 10 -
$25,000 loan from the Small Business Administration will help the company overcome a
shortage of cash in June of 2007 and again in January of 2008. Following the completion
and sale of the first home in July of 2007 the financial picture will begin improving. The
company will turn a net profit from operations in the second quarter of 2009, after two
and half years of operation. The initial investment will be recovered in the third quarter
of 2010 after three and a half years of operation.
Funds Sought and Utilization
The partners of the company will invest $130,000 of their personal savings into “Helios
Home Builders. Mr. L.C. will contribute $100,000 and the $10,000 individual equity
investments will come in the form of equity investments from Miss M.G-O., Mr. C. C.
and Mr. N.P. An additional $25,000 SBA loan will be required in June of 2007 and
another $25,000 in January of 2008 in order to meet a short term cash flow shortage.
- 11 -
Introduction
The field of Engineering Management merges the technical and scientific challenges with
the financial and operational challenges on a project basis. While engineers are typically
charged with the technical tasks of designing, constructing and operating infrastructure
improvements they are also an integral part of the financial and administrative portions of
those endeavors.
While the technical work is extremely rewarding for engineers it is only part of the larger
picture. The development of a successful engineer’s career usually leads to a more
managerial position. In fact two thirds of engineers spend more than half their
professional career performing managerial rather than technical tasks. It is this natural
evolution that is the realm of engineering management. A life long interest in
conservation, renewable energy and construction has made the development of this
operating plan a very personal experience. While personally fulfilling, the project has
also provided the platform on which the knowledge acquired through the coursework of
Engineering Management could come together into one single personally and
professionally fulfilling project. At the same time the project has provided the
opportunity to acquire a vast amount of essential technical knowledge and has greatly
improved my understanding of the subject matter, the technologies it employs and the
potential it holds.
This project began in late 2004 and because of personal and professional developments
will finally be completed with much delay in the spring of 2006. Continuing increases in
- 12 -
energy prices were of concern in the years leading up to 2004 and have become an even
greater concern now as it appears that regional volatility and ever increasing demand for
energy by developing nations will not let up soon. The long term solution to the world’s
energy problems will have to be a combination of increased conservation, and technology
deployment. Conservation can be accomplished by changing consumer’s habits and
attitudes. At the same time, deployment and development of technology will have a two-
fold effect on energy demand. It will result in the production of more energy efficient
appliances and energy consuming systems and also produce energy more efficiently and
from new sources.
Events in the global energy markets have lent urgency and importance to the solutions
proposed by this plan and give an even greater product appeal to the customers it targets.
Use of solar energy and other energy efficient technologies for home heating and cooling
is a long term contribution to the solution to the eternal global energy question. It should
be noted that the use of passive solar energy technologies incorporated in this plan are
neither new nor experimental. Most methods have been tried and tested with success for
decades while some technologies were in use by ancient civilizations throughout the
world. The contribution of solar energy to the larger energy requirements should not be
expected to have a very significant effect on the total energy demands. It should rather
be looked at as a mitigating factor that could possibly alleviate some price pressure in the
energy markets in the long term.
- 13 -
Use of solar energy is by no means a panacea for eliminating energy bills, reducing
reliance on foreign oil imports and so on. It can however be part of a larger
comprehensive energy solution if promoted, marketed and implemented responsibly.
Furthermore, any use of energy produced from a renewable source is a domestic
production of energy. Since most industrialized nations are net importers of oil, any
energy production with alternative sources will always displace imported oil or gas.
Unfortunately, homebuyers tend to focus on the purchase price more than anything when
buying a home. They tend to look at certain amenities as number of rooms, total square
footage and not consider the effect of energy efficiency on the life cycle costs of a home.
Naturally, builders try to maximize their profits by minimizing the cost of materials, and
since the energy efficiency component is not a visible one it is often the first to suffer
cuts. The fact that energy efficient techniques are not used widely and that their
implementation has not yet become an integral part of the home building process
suggests that some institutional changes such as modification of building codes might be
in order. In particular, it may be necessary to take additional steps in order to change the
current standards of doing business in the housing industry. It would be helpful to effect
changes in the way financial institutions lend money, the way consumers select a home,
and the manner in which government agencies maintain and enforce building codes.
Passive solar energy, earth sheltering and energy efficient building practices must be
given more visibility in the future.
- 14 -
It is hoped that this project can be used as a template or outline for use in other regional
or even international markets. Marketing and strategic plans should vary significantly
with location. Heating energy needs vary significantly by location as do the financial
incentives and building code restrictions and therefore a complete rework of the plan
would be necessary to increase the chances of success elsewhere.
- 15 -
Company Description
Company Name:
The name chosen for the company is “Helios Home Builders”. “Helios” is the name of
the ancient Greek god of the sun and it was felt that it would be quite appropriate to
utilize considering the company objective and activities. At the same time, business
literature suggests developing an incorporating business name that provides additional
information about the company if at all possible. The idea is to be able to convey
information concerning the company products and services through the company name
and it was felt that that objective could not be achieved effectively with the use of the
name “Helios” by itself.
Company Objectives and Mission Statement
“Helios Home Builders” aims to consistently provide its customers with quality energy
efficient homes that utilize passive solar energy, earth sheltering and other energy
efficient solutions that reflect the company’s commitment to responsible environmental
policy. “Helios Home Builders” aims to do this at reduced cost while treating its
employees, vendors and customers with respect and rewarding its shareholders at the
same time.
The management team of “Helios Home Builders” has developed an admiration for the
practices, policies and procedures followed by companies like Starbucks® and Costco®.
- 16 -
These companies provide superior quality to their customers. Quality is extremely
important in business today and one cannot survive without conforming. What is most
impressive about these companies however is that they provide their service while
treating their employees with generous benefits packages that include healthcare among
other things. “Helios Home Builders” believes that employee satisfaction is directly
related to customer satisfaction and that the improvement of employee satisfaction in
effect improves customer satisfaction.
Legal Issues
The company will commence business activities as a Limited Liability Corporation
(LLC) in the State of Missouri. The LLC entity is chosen because it is the most flexible
form of business organization currently available. It provides nearly the same flexibility
as a sole proprietorship while affording the owners the same degree of liability protection
as a corporation. For taxation purposes an LLC can be classified either as a sole
proprietorship or a class C or S corporation. Business licenses will also be acquired for
the State of Kansas so that the company can practice on both sides of the State line from
the very beginning. Future expansion into neighboring States will require additional
licenses and expenses and is not part of this operating plan.
Description of Products and Services
“Helios Home Builders” aims to provide products and services for residential properties
that utilize passive solar energy, earth sheltering and other energy efficient techniques for
heating and cooling of the living spaces. Energy Star® homes are homes that are
- 17 -
independently certified to be at least 30 percent more efficient than homes built to the
1993 national Model Energy Code. The efficiency improvements are typically achieved
through a combination of improvements such as building envelope upgrades, high
performance windows, upgraded heating, cooling and water heating equipment,
controlled air infiltration and tight duct systems. When combined with passive solar and
earth sheltering, the effects on energy efficiency can be even more dramatic. The
company’s services will be provided as total solutions that include the entire process of
construction of a residence, from location and lot selection to interior layout and
landscaping. At the same time it is felt that the company can effectively and most
efficiently provide a limited selection of prefabricated solutions that can be shipped to a
construction site ready for use. The prefabricated solutions include modular units for
utility areas such as kitchens and lavatories as sections of the final building for quick
erection and completion on the job site. The benefits of using prefabricated modules are:
reduced construction time, increased thermal mass for heat storage in the residence,
increased protection from extreme weather, better quality and finally reduced
construction cost.
Management Team
The following individuals will be part of the company’s management team. They are all
talented, focused, ambitious and highly motivated individuals with a proven professional
track record.
- 18 -
Mr. L.C., PE, will be the President and CEO (Chief Executive Officer) of the company
will be responsible for all management-level decisions of the company. Additional duties
include engineering duties, construction permitting procedures, research into industry
trends, new technologies and products.
Miss. M. G-O will be the CFO (Chief Financial Officer) of the company and will be
responsible for financial analysis and taxation matters. Miss M. G-O will also be
responsible for the company’s marketing efforts, research into current and future markets,
public relations and human resource issues.
Location
The company will be located in Kansas City, Missouri. From this location the company
will serve both the Kansas and Missouri market needs. If growth permits expansion into
neighboring states such as Illinois and Iowa will be seriously considered although this is
not in the company’s immediate plans. It is expected that the close geographical
proximity and overall demographic similarity of the above mentioned locations will
allow use of some of the same assumptions made for the original plan. Some variation in
the form of energy prices and financial incentives is expected.
- 19 -
Industry Analysis of Home Builders
“Helios Home Builders” will become part of a generally healthy construction industry.
New home construction has been setting records for several years. Growth is stable and
the industry has always been a significant contributing force for the rest of the economy
as well.
Economic Sector and Industry
In constant year 2000 dollars, the US Gross Domestic Product has grown at an average
rate of 2.75% since 2000. In the more recent past it has grown at rates of 4.2% in 2004,
3.5% in 2005.1 At the same time Missouri Gross State Product grew 1.3% in the years
1997-2003 and 2.4% between 2003 and 2004. Kansas Gross State Product grew 2.2% in
the years 1997-2003 and 3.6% between 2003 and 2004. At the same time the
construction industry’s contribution to the Gross State Products fell by 0.02% for
Missouri and 0.06% for Kansas.2 The reduction in the construction industry’s
contribution to the gross state product is a result of the rise in the contribution of other
industries and the percentage decrease is not significant enough to cause concern. In
general terms the industry is a stable and mature one. However, according to the
Association of General Contractors 91% of the nearly 600,000 construction
establishments had fewer than 20 employees, and in 2002 there were 79,000 new firms,
while 81,000 had closed. In other words, there is an annual turnover of firms in the
neighborhood of 12%.3
- 20 -
Sensitivity
New home construction is generally affected by many factors such as consumer
confidence, mortgage rates, and the strength of the economy in general. Currently,
interest rates are at reasonable levels even though they are up from multi-year lows that
occurred just a few months ago. Federal regulators have indicated that interest rates will
rise in the short-term and are expected to level off or decline in the months following
such increases. This should have a cooling effect on overall home sales in the short-term
and result in reducing the median price of a new home. Builders may need to reduce
their prices in order to keep their homes affordable for the same group of buyers.
Overall, indications are that the US economy is strong and consumer confidence is good.
Seasonality
The homebuilding construction industry exhibits some degree of weather related
seasonality. In particular, more construction tends to occur in the warmer dry months
than in the winter months. Because of the time lag between the purchasing of materials
and the time a home is sold, builders are called to finance the project costs through the
construction phase which lasts for several months. Weather delays can affect both new
housing starts and the total duration of the construction phase activities adversely
affecting cash flows. The housing market is subject to seasonal variations due to bad
weather. The variations for the period between January 2004 and January 2006 are
indicated in Figure 1 of Appendix C. The trend line of the chart shows significant
- 21 -
volatility, but also some consistency compared with historical fluctuations. Comparing
the January of 2006 to January of 2004 and 2005 indicates an overall increasing trend.
Technology
The technological aspects of homebuilding are not considered to be challenging at this
point. Technological innovations are constantly taking place, however the nature of the
industry is that of a conservative one that uses tried, proven and readily available
technology. It takes time to change the traditions and stereotypes that have developed in
the industry. Change is always hard to implement, but it is even tougher within the
construction industry. During the research phase for this project it was discovered that
there are construction companies in other areas of the country such as California and
Colorado that are attempting to establish a similar quick, modular construction model.
The advantages of the systems they are attempting to promote are focused on trendy
designs, efficiency and construction time savings. Their success remains to be seen, but
there is no reason to doubt that this quick and modular model will be successful. In fact
it may be the way of the future. What has changed over the past few years as far as
technology is concerned is the visibility of smaller companies because of the internet. A
small company now has access to new marketing tools and can make their materials
readily available to interested parties at low cost.
Regulatory/Certifications
Area building codes must be fully adhered to. Implementation of passive solar designs
and earth sheltering techniques as opposed to active solar systems will help avoid
- 22 -
potential conflict with local zoning regulations, subdivision ordinances and homeowner’s
association covenants. Active solar systems involve external wall, roof or ground
mounted collection panels that are quite frequently considered unsightly and
consequently not allowed. At any rate, full cooperation with the City of Kansas City
Codes Enforcement Department, Unified Government of Kansas City, KS and Wyandotte
County, KS, City of Overland Park, KS and other area regulatory bodies will be essential
in ensuring product acceptance.
- 23 -
Target Market
Short-Term Target Markets: Market Size and Trends
Potential clients for “Helios Home Builder’s” products are individual homebuyers and
homebuilders.
The target market for individual homebuyers will be Kansas and Missouri Residents
between the ages of 30 and 60 with a household income above $65,000/year. This
household income level is necessary to ensure that the targeted customers will be able to
afford to buy a home at the median new home price of $243,700. The income was
calculated based on the fact that lenders restrict the housing expense to income ratio to 28
percent. These buyers will be technically adept, trend setting, socially responsible and
environmentally conscious smart shoppers. It is felt that buyers over 60 are less receptive
to changes and are less likely to buy a new home. At the same time, buyers above the
age of 30 are most likely second time homebuyers and are aware of the significance of
operating expenses on the real cost of owning a home.
In the short-term, rising interest rates may limit the potential for robust industry growth,
but the energy efficient home portion of the market is expected to grow by leaps and
bounds according to the US Environmental Protection Agency projections. In the
beginning the market may actually be best compared to a niche market and indications
are that it is possible to operate a lucrative business by implementation of the
prefabricated modules.
- 24 -
Long-Term Target Markets: Market Size and Trends
In the long term, interest rates should stabilize and possibly decline again. As noted
previously and as supported by most industry analysts today, heating costs will continue
to trend upwards in the long term. At the same time, environmental causes have been
gaining acceptance over the years. This is expected to continue and it is hoped that it will
translate into an increasingly favorable outlook for energy efficient and prefabricated
products. The government Energy Star® program will lend visibility to energy efficiency
and tax credits are helping tip the financial scales in a favorable direction. All of these
trends will have a positive effect on product appeal and sales.
Finally, in the long term, it is hoped that the market will expand to include the segment
below the age 30 that includes first time home buyers, and that expansion will bring the
Iowa and Illinois markets within reach as well. Such analysis is not part of the current
business plan.
- 25 -
Competition
Categories of Competitors
There are two categories of competitors with whom “Helios” will compete most directly.
They are builders who participate in EPA’s Energy Star® program and produce site-built
energy efficient homes and those who build traditional homes without focusing on energy
efficiency.
“Helios’s” homes compete directly with site-built energy efficient homes rather than
those built by traditional builders. The EPA also makes information regarding
manufactured housing available and this information is presented in a more general sense
to demonstrate the overall growth of the energy efficient home market. The EPA’s
Energy Star® program has 12 site-builders and 8 manufactured home builders listed for
Missouri and Kansas. Out of the 8 manufactured home builders it is important to note
that 3 of them are new partners in the program. That represents a 37.5 percent increase in
the last twelve months. In terms of homes built, 18 of 85 homes were built in the last 12
months which is 21.1 percent of the total Energy Star® Homes built. For site-built home
builders there are 5 new partners listed, an increase of 41.7 percent, while 15 of the 38
Energy Star® homes or 39.4 percent were built in the last twelve month period. These
numbers indicate that there is a strong increasing market trend towards energy efficient
construction in the past twelve months. During 2005 there were a total of 45,682 new
privately owned housing units authorized in Kansas and Missouri.4 Homes built under
the Energy Star® branding program are still a negligible fraction of this total. In fact
- 26 -
according to the EPA’s information, it is 0.04 percent of new homes.5 Many existing
structures are being converted by their respective owners to Energy Star® homes and it is
believed that some homes are being built to high energy efficiency standards that have
not utilized the EPA’s program. As a result the market for energy efficient homes is
much larger than it appears from the available information.
Description
These competitors are spread out geographically and offer their services throughout
Missouri and Kansas. The low numbers for the majority of on-site builders of energy
efficient homes indicate that these are smaller companies and that they have not built any
large scale developments as of yet. Finally, traditional builders are more diverse in their
characteristics. Their size varies from builders who build less than ten homes per year to
very large builders who build hundreds of homes per year.
Market Share Distribution
Energy Star® program participants also vary in size from builders that have built one
energy efficient home in the last twelve months to builders that have built ten. The clear
leader in the Kansas and Missouri market has built seven of the fifteen Energy Star®
homes constructed in the past 12 months, which represents a 46.7 percent share of the
market. There are two firms with a 13.3 percent share and the remaining four maintain a
6.7 percent each. As noted earlier, the total number of Energy Star® homes built in
Missouri and Kansas is very low according to the EPA and as a result market shares are
of little significance at this point.
- 27 -
Barriers to Entry
The Construction industry and the home building industry in particular have always been
one of the easiest industries to enter into business in. Barriers to entry are low and the
market is consequently highly competitive. This highly competitive nature of the
industry is partly responsible for the high turnover. At the same time, the absence of
barriers allows under qualified and under financed poorly managed businesses to enter
into the market. Construction of energy efficient homes requires a commitment to quality
and additional knowledge that most of them lack.
Strategic Opportunities
The Midwestern suburban market is an exceptional location to apply the principles of
passive solar heating, earth sheltering and higher energy efficiency in general. The
availability of land at reasonable prices allows for use of the proposed energy efficient
techniques without the implementation of higher cost and more complex active systems
that also conflict with local building codes.
Information on builders of energy efficient homes indicates that there are many new
builders and manufacturers entering the market in the last twelve months and that the
number of homes built to energy efficient standards by the previously established
builders is increasing at a much quicker pace than before. This increase in activity
indicates that there is an increase in demand and that there are significant opportunities in
the energy efficient housing market. Of course, it also means that the level of
competition is also increasing and becoming more threatening.
- 28 -
Significant strategic opportunities have arisen from the fact that leaders in energy
management also achieved superior market performance. According to studies, active
Energy Star® partners outperformed non-partners by 12 percent over the same period.
This is an indication that the market places a significant premium on such companies.
There are many factors that influence a company’s financial performance. However, due
to large differentials and the significant benefits of improved energy performance it is
likely that energy management increases investor returns.6
Also, if one considers that 30 to 35 percent of the total operating costs of a building are
attributed to energy consumption while the energy intensity of Energy Star® labeled
buildings is 44 percent lower than the market average, it is easy to see that there are
significant financial benefits to be gained from increased energy efficiency. The
financial benefits translate directly into enhanced property values as well. Research done
by the EPA has found that for every dollar invested in energy efficiency there was a three
dollar increase in asset value.7
The quantification and publication of such benefits for the end users of energy efficient
homes will increase the attractiveness of “Helios’s” products compared to those of the
competition that do not offer energy efficiency as part of their products. At the same
time, the use of prefabricated modules will help reduce overall construction time and
construction costs.
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Finally, “Helios Home Builders” plan of collaborating with other builders and Architects
by making its modules available to them further differentiates it from the competition and
strengthens its competitive position. According to a McKinsey & Company survey,
leading business to business sellers with collaborative initiatives were able to increase
revenues by 20 percent, on average. At the same time, this collaboration can enable
“Helios” to fend off pricing pressures and strengthen the bonds with some important
customers.8
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Partners Lenders
Mortgage Companies and banks listed on the Environmental Protection Agency’s (EPA)
Energy Star® website will serve as business partners. These companies use the EPA’s
program to differentiate themselves from the competition as well. In general, such
lenders are more familiar with government energy efficiency guidelines and programs.
At the same time, they are able to offer larger loans for energy efficient homes because
they recognize that the reduction in energy costs has a positive effect on the disposable
income available for mortgage payments.
Kansas lenders that service and promote Energy Star® certified homes include
Energywise Mortgage and Indigo Financial Group Incorporated. Missouri lenders that
participate in the program are, America One Finance, Energywise Mortgage and Indigo
Financial Group Incorporated.
Government Assistance Programs
The U.S. Environmental Protection Agency is a partner through its promotion assistance
programs and the administration of the Energy Star® branding program.9
On a national level, there are tax credits up to $2000 available for Energy Star® certified
homes.4
The U.S. Department of Housing and Urban Development could use “Helios’s” designs
in order to offer real long term economic relief in the form of reduced energy costs.
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Although there are no financial incentives available on a local basis, the Mid-America
Regional Council (MARC) has established promotional programs for builders and
interested parties that focus on energy efficiency and “Green” building in the Kansas City
Bi-state region.
Environmental/Conservationist Organizations
These organizations always offer their support in the form of cooperative promotions at
trade shows. In general, they are vocal, motivated and welcoming to new members.
“Helios Home Builder’s” goals have plenty of common ground with those of the
environmental and conservationist community. Both parties have the opportunity to gain
from partnerships and they could contribute in significant ways to the business plan.
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Strategic Position and Risk
Branding
“Helios Home Builders” has a commitment to quality. It is believed to be a good strategy
to guard and promote the company’s products under a branding plan as this will allow
“Helios Home Builders” to establish a solid reputation with high visibility and name
recognition while building a good customer base. This can be done effectively by closely
associating the company’s products with the proven Energy Star® marketing program.
According to a J.D. Power home builder study released in 2004, builders who are Energy
Star® partners receive higher homebuyer satisfaction ratings than those who are not.10
At the same time another study demonstrated that corporate social responsibility is a
concern for 80 percent of the US population, and most consumers will either avoid or
patronize a business based on its commitment to socially responsible business practices.11
While “Helios Home Builders” will make use of product branding, the development and
manufacture of proprietary products is not part of the operating plan. In fact “Helios
Home Builders” strongly believes in and intends to promote simplicity in design and
construction for all of its products.
Sales Channels
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“Helios” will use an array of sales techniques. Mailers will be sent to targeted customers,
personal meetings will be held with customers, lenders and realtors. The company will
also participate in regional home shows as well.
Internet and e-commerce sales are possible through a well designed website. Other
modular housing manufacturers have implemented such schemes for their products. If
the number of different designs is kept to a low number it is possible to pursue such a
strategy without rendering a website cumbersome.
With buyers of traditional homes it is expected that a prefabricated module demonstration
unit should work the best. This will be made available at the production facility and to
the extent possible at the Greater Kansas City Home Shows. The Home Show takes
place at the end of March each year. In 2007 “Helios will participate with a 20 ft by 30 ft
booth. The complete cost for participating in the 4-day event during 2006 is estimated at
$8,020. These expenses will incur in March of 2007, and repeat each year at an
estimated increase of 5 percent per year. Thousands of people attend the show each year
and the demographics of these attendees fit well with the requirements of “Helios”.
According to the organizers, 77 percent of the attendees are between 30 and 55 years old,
31% of them have household income between $61,000 and $100,000 and another 24
percent of them have income above that level.
Finally, the established realtor network is the most significant sales channel that will be
used. Realtors will promote sales of “Helios’s” homes during the construction phase and
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it will be necessary to put forth a significant effort in educating realtors on the benefits of
energy efficient homes with modular construction techniques. They will be provided with
product catalogs including detailed explanations on the benefits, amenities and costs of
“Helios’s” products.
The use of these three channels is often referred to as “triple-play” and is utilized by
retailers to maximize their share of customer spending. Catalogs bring in new customers,
the internet offers convenience and fast access to information, while the physical location
allows buyers to handle and test a product before proceeding to a purchase.12 Such a
tactic should work well for “Helios’s” products as well.
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SWOT Analysis
Strengths
One of the most important strengths of “Helios Home Builders” is the advanced level of
education of its partners and staff. They have pursued many educational opportunities
during their careers and are eager to apply their knowledge for the benefit of the
company. Along with advanced education, the partners bring the rich and diverse work
experience they have acquired at their previous employment engagements. This diversity
of previous experience is an extremely valuable asset for the company and a definitive
strength.
“Helios Home Builders” will have very distinct, significant, and valuable advantages
built in to their products. In particular, strength will be drawn from prefabrication,
superior quality control, energy efficiency, floor plan flexibility security and faster
construction. Prefabrication will allow speedy erection at the construction site thereby
reducing delivery times. Superior quality control will be achieved through production in
the controlled environment of a production plant. Energy efficiency will reduce long
term operating and maintenance costs for the final user. Floor plan flexibility and
therefore architectural flexibility will allow customization that is not always available in
prefabricated homes and large subdivision developments. The increased safety and
security against natural disasters provided by the massive design of the energy modules is
also not available in traditional housing. Finally, the reduced construction time that
“Helios” will achieve will set them apart from what the industry has to offer.
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At the same time, the company’s commitment to delivering quality construction and
service to each and every customer is a policy that will continually pay dividends and add
to its strength. Finally, numerous personal contacts in the industry are a good solid base
for launching this company.
Weaknesses
There is no reputation built yet. The company will be working with the personal
reputation of its partners and goodwill.
Because of bad implementation and poor workmanship on solar projects in the past a
perceived unreliability of solar energy and energy efficiency has developed in the minds
of the public. At the same time, the term “efficiency” very often means inconvenient,
unreliable and even ugly to the prospective homebuyer. In addition, prefabrication also
has a negative public perception associated with it because of the unsafe image of mobile
homes and trailer parks. This perception will be working against the company from the
very beginning, but awareness will allow “Helios” to take the measures necessary to
overcome it. Finally, prefabrication will require additional investment in production,
transport equipment and logistics for proper implementation.
Opportunities
The housing market has been consistently vibrant in the past and indications are that this
will continue to be the case in the long-term despite seasonal variations due to weather
and short-term interest rate increases. At the same time, the energy market has shown
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signs of extreme volatility and overall energy prices have been rising for many months.
The experts point to explosive growth in several developing countries to show that this
trend will continue and even accelerate in the future. Finally, environmental and
conservation movements have significantly changed public opinion over the last few
years. This trend is also seen as continuing and gathering steam. All of the above factors
will contribute to accelerated growth in consumer demand for energy efficient homes in
both the short-term and long-term.
Threats
The industry exhibits low barriers to entry which tends to result in a very competitive
environment with many firms willing to do the work. The required technology is readily
available to any interested party, so once the public becomes more accepting to the
solutions, there are no patents to keep the competition from adopting and competing
directly with “Helios”. The market could show signs of weakness mainly because
interest rates have been on the rise.
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Marketing
“Helios Home Builders” believes that the development of an effective marketing plan is
an essential element in the creation of a viable business. The development of a cost-
conscious effective strategy is central to success in convincing the homebuyers to choose
the home designs and solutions proposed by “Helios” over those produced by traditional
methods.
According to an industry study, 77 percent of homes are built by homebuilders. This
implies that the builders are the ones making the decisions regarding energy systems and
appliances instead of the homeowner. The problem is that the homebuilders are not so
much concerned with the cost of the utility bills that the homeowners will be called to
pay over the life of the structure. Builders are in general more concerned with
maintaining a healthy profit margin on the final price of the finished structure. In order
to maintain their competitiveness, while offering a home of a certain quality and size
their sales price must agree with home prices of the general area as reported by real estate
appraisers. This way of thinking presents an obstacle as it forces exclusion of the
increased upfront investment of improved energy efficiency. “Helios Home Builders”
believes that this is something that should be corrected as the long-term operating costs of
a building are substantial and cannot be ignored.
“Helios Home Builders” believes that implementation of the earth sheltering, passive
solar and efficient energy solutions in the homes it will produce have been around long
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enough that they cannot be considered experimental at this point. Their effectiveness and
reliability is not in doubt as they have performed well over the years. Further increases in
fuel costs in the future should result in a positive increase in the rate of adoption of
energy efficient technologies. Currently, many energy experts are forecasting gradual
increases in fuel prices in the long term, so it is safe to assume that this will positively
affect the implementation plan and increase its chances for success. In fact rising fuel
prices will be a key point in the advertising strategy.
In the marketing plan, “Helios Home Builders” will define the following goals: 1) How
will potential homebuyers be made aware of “Helios’s” services and products; 2) What
message to get through concerning “Helios’s” products and services; 3) The methods to
use to get the message out; and 4) How sales will be secured.
The company’s marketing message will be one promoting a socially responsible lifestyle
without making any sacrifices in style and convenience in the choice for a home. All this
can be done at a lower cost than was possible in the past, with greater time efficiency and
at a high quality. Marketing literature suggests that customers want five things.
The first one is function. How does the product meet the customer’s needs? A home
meets one of the most basic needs of human beings as it provides shelter and comfort. In
this respect, “Helios” is does not offer anything different than what the competition has to
offer.
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The second is finances. How will the product affect their financial situation? Energy
efficient homes have a positive effect on their owner’s finances. They can allow
homebuyers to qualify for larger homes by increasing the mortgage they qualify for. This
is accomplished in two ways. First by taking advantage of the $2,000 Tax credit for
Energy Star® homes the initial capital required to purchase a home is reduced. Also, in
the long term they reduce the costs of owning a home. This is accomplished by lowering
the monthly energy requirements for heating and cooling the home by 30 percent on
average. The EPA estimates that the owner can save $35 per month. The present value
of this payment over the full term of a 6.5 percent interest rate and a 30 year mortgage
turns out to be $5,537. These savings can instead be applied to a larger mortgage
payment. The lower heating and cooling loads for energy efficient homes also offer
potential savings of an additional $400 can be achieved through the use of HVAC
equipment with lower capacities. Furthermore, construction schedule savings result in a
22 day reduction in construction time compared to a conventional home. The savings are
realized through the use of the prefabricated modules and amount to $1,282 of financing
costs. Calculations were based on a 1 month financing of the $243,700 median home
price and a 6.5% interest rate. Finally, according to independent research energy efficient
homes enjoy increased value when compared to non-energy efficient homes and it should
be noted that the savings calculations are conservative as they do not take into account
any increases in energy costs that may occur in the future.
The third need is freedom. How convenient is the purchase and use of the product? For
the types of energy efficient homes “Helios” is proposing to build there is no adverse
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effect in the convenience they afford to their owners. On the contrary, homes built with
the features and methods proposed by “Helios” provide the occupants with natural light,
reduced noise and more comfortable living conditions.
A fourth consumer “want” that needs to be satisfied is their feelings. How does the
product make the customers feel about themselves? The general public has developed
increased awareness for two subjects that concern us. The first one is the U.S.
dependence on energy imports and the second one is environmental responsibility. The
ownership of an energy efficient home addresses both of those issues in a favorable
manner. It reduces the energy requirements of a home and consequently contributes to
the reduction of energy imports, while at the same time reducing emission of greenhouse
gasses.
Finally, the fifth is the future. How will the product perform over time, how will that
affect them and what kind of support can they expect later on? “Helios’s” construction
methods can provide a certain degree of reassurance as the use of concrete for thermal
mass in the prefabricated modules adds substantial strength and durability to the final
structure while providing increased security against extreme weather conditions. It
should be noted that Kansas and Missouri are in an area determined to be at high-risk for
extreme weather events and the cost of the modules is equivalent to that proposed by
FEMA for construction of above ground reinforced concrete masonry shelters. 13
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“Helios Home Builders” will use a mix of affordable marketing vehicles to get the
message out. Marketing vehicles will include brochures and product catalogs, a company
website, print media, online advertising, trade-show participation and finally informal
marketing/networking with organizations and realtors.
“Helios Home Builders” will use several tactics in its marketing efforts. Those include
the use of the Energy Star® branding tools that are made available from the
Environmental Protection Agency. The use of these tools will give a solid, recognizable
branding icon that lends value to “Helios Home Builders” image. It is worth to note that
some builders who utilize the Energy Star® program credit it with generating 30 percent
faster growth than they had projected, increased profitability, faster home sales and
environmental protection among other things.14
In order to assure that the marketing expenses are properly spent on ads that reach the
right people and not the most people, efforts will be placed in focused publications.
Sunday newspaper publications are traditional promotional vehicles for real estate. In
“Helios’s” target market, the Kansas City Star is selected as the regional print media to be
used because of its wide coverage area in both the Missouri and Kansas markets. The
Sunday Star’s circulation is 382,540 with a readership of 888,700. “Helios” will place a
one-quarter page horizontal ad for 50 weeks in the “House and Home” circular of the
Sunday Kansas City Star. The annual cost of the four-color ad will be $3,282.56
beginning in January of 2007 and will be billed to “Helios” on a monthly basis. The
costs of placing the ad are expected to increase at 5% per year.
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Finally, informal marketing efforts will also concentrate on attending and participating
with presentations in events promoting environmental and conservationist causes.
Becoming a member of such local organizations will help attract business from the
membership ranks. Marketing to individuals commands a high cost and a lot of
advertising effort per sale generated, but “Helios” will be most successful by pursuing
this strategy.
Website
The key to a professional, effective website is the overall simplicity and ease of
navigation. The goal is not to overload the customer with information. It must download
fast so that the customer does not loose interest. Music and videos will not be necessary
as they increase download times. It will include basic information on the company and
the products and adhere to the following structure:
The home page will contain general and background information about the company as
well as information about the products and services it provides. It will contain a
promotional section explaining why “Helios’s” products set it apart from what the market
has to offer in style, financial advantages, and delivery times. It will include a section
with photos of finished designs, a section with drawings for customers to make choices
from and a section with an information request form for customers to fill out and submit.
Finally, it will include a section with useful links to the Environmental Protection
Agency’s Energy Star® program and the National Renewable Energy Laboratory.
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The 4-page website will be developed in-house using available software. There is an
annual reactivation fee of $200, a change fee of $100 per change and the listing and
maintenance of the site will cost $100 per page per month. The total cost for the website
is estimated at $5,355 per year beginning in January of 2007 and increasing at a rate of
5% per year.
A marketing budget for the first five years of operation that summarizes the planned
activities and expenses has been established as Tables 1, 2 and 3 and included in
Appendix C of this document.
Sales Projections
Based on information on the available nationwide sales figures and current sales of local
competitors in the Energy Star® program, the future trends in the energy efficient home
market and information on the home market in general it is possible to arrive at some
reasonable assumptions regarding “Helios’s” sales projections.
Government statistics indicate that the average price of a new single-family home sold in
2005 in the Midwest was $243,700. 15 Out of a total of 204,000 new homes built in 2005
there were 70,000 new homes priced between $200,000 and $300,000, a number that
represents 34 percent of the total. It can be conservatively assumed that one quarter or
17,500 of those homes are within our price target. Affordability of such a home requires
a household income level above $65,000 per year according to lending institution
qualification requirements. Because the price distribution for new homes has a normal
distribution shape, “Helios’s” target is to maintain prices at a level close to the median
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value so that it can have access to the widest possible customer base. Figure 2 in
Appendix C provides a graphical representation of new home price distribution for the
Midwest.
Also during 2005, there were 45,682 new privately owned housing units authorized in the
target market area of Kansas and Missouri. Based on the same assumptions used for the
regional information, 34 percent or 15,532 homes are priced between $200,000 and
$300,000. It is assumed that one quarter of those, or 3,883 homes are within our price
target and our market area.
If “Helios’s” advertising campaign reaches:
a) Worst case scenario:10 percent of the qualified target market, it has potential sales of
388 homes.
b) Middle-of-the-Road scenario: 30 percent of the qualified target market, it has
potential sales of 1164 homes.
c) Optimistic scenario: 50 percent of the qualified target market, it has potential sales of
1940 homes.
If “Helios’s” sales techniques convince 10 percent of the interested buyers the worst case
scenario for sales would be 39 homes. The optimistic sales scenario would yield sales of
194. Yet, “Helios” will begin conservatively, with sales of 4 homes in 2007, a figure that
represents 10 percent of the worst-case scenario.
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Under the Energy Star® program there were 15 new site-built homes built by partners in
2005 in Missouri and Kansas. On a national level the EPA lists Missouri and Kansas as
potential new markets and indicates that there is no significant market penetration there.
In contrast, many other areas of the country show 20 percent market penetration for
Energy Star® homes. A 20 percent market penetration in Missouri and Kansas for our
qualified target market would be nearly 800 homes, a figure well below “Helios’s” worst-
case scenario of 39 homes and the optimistic scenario of 194 for 2007.
Also on the national level, according to the EPA, the number of Energy Star® qualified
homes has nearly doubled in each of the past five years since 2000 to reach a total
360,000 homes at the end of 2004. Out of that total 36 percent of them where built in
2004. 16
These national trends will undoubtedly spread to Kansas and Missouri as well. In fact,
39.4 percent of Missouri and Kansas Energy Star® new site-built homes were built in the
last 12 months. The overall number of homes is still a fraction of a percent of the total
built which indicates that there is an enormous potential for growth. As indicated
previously the Energy Star® program is a growth market within the housing market as a
trend has developed on a national level. Figure 3 in Appendix C presents the projected
growth for Energy Star ® homes in Kansas and Missouri based on national EPA data.
In growth markets it is difficult to make accurate assumptions, but in-line with the results
achieved in other states, it is thought that a conservative estimate would be a 100 percent
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increase in the number of energy efficient homes built under the Energy Star® program
on a year-on-year basis for 2006 and 2007. Projections further into the future are harder
to make, but a conservative estimate for 2008 through 2011 will be a 100 percent increase
in the number of homes. These growth estimates are in line with what has been occurring
on a national level and may actually be conservative.
“Helios’s” aim is to capture just a fraction of that market through trade-show
participation, Sunday newspaper advertising, and other less significant channels and build
4 homes during its first year of operation in 2007. In 2008 “Helios” plans on selling 8
homes and projecting a 50 percent growth from that point in time to the end of the 5 year
planning period.
The projected sales figures are shown in Table 14 of Appendix C.
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Operations Plan
Administrative
The company’s administration will require the hiring of an office manager. Office
manager tasks include phone answering, accounting duties, office administration,
preparation of bid contract documents and invoicing. The office manager will also be
responsible for renewal of business and professional licenses, payment of rent and utility
bills, office filling system maintenance and payment receipts.
As a matter of company policy, response time to customer inquiries will be less than 24
hours. This policy will be strictly enforced and monitored as it is crucial in assuring
customer satisfaction. The office manager will be responsible for coordinating the
necessary actions by “Helios’s” staff and assuring prompt action.
Staffing
During the first year, operations will be carried out with 1 administrative support person,
1 manager, 1 engineer and 2 production workers. By the end of the fifth year it is
projected that operations will require 2 administrative support persons, 1 manager, 4
engineers and 4 production workers to meet production and construction obligations.
A staffing budget has been developed based on these needs and is included as Table 15 in
Appendix C.
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Professional Services
“Helios” will contract the services of a Certified Public Accountant for consultation on
matters concerning taxation and record keeping. A contingency for legal expenses such
as attorney fees has been estimated at $1,000 per year with a 5 percent annual increase.
Accounting fees are estimated at $2,400 per year with a 5 percent increase per year.
Finally, a $600 per year expense with a 5 percent annual increase for technology
consultants has been budgeted for information systems maintenance and upgrade. A
budget that summarizes the planned purchases and expenses for other services acquired
as necessary for administrative operations has been established and included in Table 13
in Appendix C of this document.
Business and Professional Licenses and Registrations
The cost of securing business licenses is estimated at $250 per year. In addition to
business licenses Kansas and Missouri require professional registration for persons and
corporations engaged in the practice of engineering. The cost of renewing an individual
professional engineering license in Kansas is $70 for a two-year period, while in Missouri
the fee is $100 for two years. The costs of renewing professional corporate licenses are
$110 biannually for Kansas and $200 for Missouri. In addition, they also require
professional development in the form of continuing professional education. This may be
in the form of approved educational seminars and college level coursework. The
continuing education requirements are calculated on a biannual basis, and it is expected
that they it will cost $500 per year for each engineer.
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Payroll
The Social Security tax rate is currently set at 6.2 percent, while the Medicare tax rate is
1.45 percent of gross wages paid. However, employers must also pay state and federal
unemployment taxes known as SUTA and FUTA. The current rate for FUTA is 6.2
percent, and the current starting SUTA rate for construction businesses in Missouri is
3.94 percent. A company can receive a credit for the rate paid as SUTA up to 5.4 percent
so it follows that the total unemployment tax paid will still be 6.2 percent. The sum of
Social Security, Medicare, state and federal unemployment taxes amounts to 13.85
percent of gross wages.
Benefits
Health insurance costs are estimated to cost $7,000 per employee for the first year.
Because health insurance premiums have been increasing significantly in recent years, it
is necessary to take the potential increases into account. This operating plan assumes a
12% annual rate of annual increase based on data available from the Kaiser Family
Foundation that shows that healthcare premiums have increased at 14 percent in 2003,
11.2 percent in 2004 and 9.2 percent in 2005.16
Office Supplies and Miscellaneous Expenses
Furniture for the office will be purchased with a maximum budget of $2000 at the
beginning of the first year. An allowance of $300 per month will be made for office
supplies such as printing paper, plotting paper, printing ink. An additional $75 per month
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will be allocated for mail and document shipping and $100 per month for maintenance
expenses. Finally, $100 per month is allocated for traveling expenses and a contingency
of $150 per month will be budgeted for unforeseen expenses.
Rent
Rent for the land production facility and office space will be $6.00 per square foot per
year. That translates into $3,000 per month. The lease rate for the 2.4 acre site includes
14 parking spaces, 348 sq. ft. of office space, 4,652 sq. ft of manufacturing and
warehousing space. The utilities are not included in the lease rate and are estimated
separately.
Utilities
The electric bill for the manufacturing facility and offices is estimated at $450 per month.
The telecommunications budget includes a cost of $400 for a telephone system and
cellular phones, and an additional $200 for a fax machine. Local, long distance and
internet service is estimated at $150 per month, while and cellular telephone cost are
estimated at $150 per month. Finally, water costs are estimated at $550 per month.
Technology Plan Hardware
“Helios Home Builders” will begin operations with three laptop computers. For the
purposes of this business plan “Helios Home Builders” will invest in near top-of-the-line
equipment in order to postpone the problem of obsolete equipment as long as possible.
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The firm will also use a central server for file storage and security. The use of a security
enabled wireless network will be required as well. The current technology utilizing the
802.11g standard for wireless networking is fast and inexpensive while at the same time
it is user friendly. The use of wireless networking will eliminate the costs of installing
the necessary cabling and Ethernet outlets in the company’s facility while providing
management and personnel greater mobility at the same time. Also, essential equipment
will be a photocopy machine, a scanner, a laser printer, overhead projector, and finally
plotting and printing equipment.
Software
Microsoft® Windows XP® Professional Edition will be used as the operating system and
it comes preinstalled as a package with the notebook computers. Furthermore, “Helios”
will use the following software packages and will need three licenses to cover its basic
operating needs. Microsoft® Office® Professional Edition which includes: MS Word®
for word processing, MS Excel® for spreadsheet calculations, MS PowerPoint® for
product marketing and sales presentations, and MS Access® for database management.
Microsoft® FrontPage® will be used for the company’s website development while
Microsoft® Publisher® will be used for brochures, product catalogues and marketing
circulars.
The need for Computer Aided Design (CAD) software is essential for the design and
production of construction drawings. “Helios Home Builders” will use AutoCAD® LT
because it is a powerful and flexible software package that provides all the necessary
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design tools needed at a very reasonable price. Only one license is required for this type
of software.
Finally, “Helios” will use Peachtree® Complete Accounting 2006 for small businesses.
A single-user license will be acquired in the beginning and upgrading to multiple users
will be possible if needed in the future.
A technology budget that summarizes the planned purchases and expenses necessary for
unhindered and competitive operations has been established and included in Table 16 of
Appendix C.
Information Systems
The setup and operation of company information systems will be done on a contract
basis. An initial setup charge and monthly maintenance fee will be allocated for this
purpose. It is felt that it is not necessary to keep a person on the payroll for information
systems due to the small initial size of the firm. If the firm’s size warrants it in the future,
this decision can be reevaluated.
Engineering
Site Design will be handled by Mr. L.C. as he will be the licensed Engineer in charge of
design tasks. Site design will include permit applications to City, County, State and
Federal agencies. These permits include building permits, land disturbance permits,
- 54 -
USDA Farmland Conversion permits, Department of Conservation permits, and Corps of
Engineers Floodplain Development permits when required.
Design tasks include earthwork calculations, foundation design, driveway design,
electrical, plumbing, structural, site orientation, material quantities and site drainage
design. Utility connections for Sewer, Water, Telephone, Internet, and Cable will be
incorporated in the site design for projects.
Module Cost and Production Time Calculations
According to the production plan, it will take 27 days to produce a Type 1 module at a
cost of production estimated at $2,192.64. Estimated production costs for labor and
materials are included in detail in Table 6 of Appendix C.
The design dimensions will be 8ft x 14ft x 8ft (W x L x H) for a Type 1 prefabricated
module. The module will weigh 27,000 lbs as shown in Table 4 of Appendix C. A
drawing of the proposed module is included as Figure 4 in Appendix C. The final
product will be stored outdoors when finished.
Manufacturing Facilities
The manufacturing site will be centrally located within 30 miles of Kansas City,
Missouri. Convenient Interstate highway access is a requirement for quick and reliable
jobsite delivery of the modules and other construction materials.
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The land area required is estimated at 2 acres and the size of the production facility is
estimated at 5,000 sq.ft. including 348 sq.ft. of office space. The 100 ft long module
production line requires 1,728 sq.ft of area. The remaining 2,924 sq.ft. will be used as
storage area and for future expansion. Rough calculations for space requirements are
shown in Table 9, a cost estimate is shown in Table 10 and a conceptual drawing of the
production facility is included as Figure 5 of Appendix C.
Manufacturing activities include construction of modular concrete forms. The forms can
be reused 10 times before they will need to be replaced with no salvage value. Other
production activities are form assembly and removal and concrete pouring. During
assembly of the modular forms, workers will also place tubing for plumbing and
electrical systems. All materials and labor required for such activities are shown in
Tables 5 and 6 of Appendix C.
Utilization of a rail line is desirable in order to move the modules through the production
facility and out to the yard for storage and transportation to job sites. The cost of the rail
line is estimated at $6,105.60. The production facility can accommodate 2 production
lines, although only one is needed for our planned production. Based on the project plan
developed for module production, it is estimated that maximum annual production on one
production line will be 31 modules. A Microsoft Project® plan was been developed for
the production of an individual module. Based on that another plan for the annual
production was developed taking into account variations due to non-working weekend
days, national holidays and movement in the production line. Based on the estimate the
- 56 -
projected demand for the planning period of this operating plan will be met without
difficulty. The initial plan is to use ready-mix concrete for module production. This will
eliminate the need for “Helios” to maintain inventories of most materials.
Inventory
Inventories of various raw materials necessary for production of the modules will not be
maintained at any significant level. Items listed as inventory in the financial statements
of this report represent land acquisition and construction costs invested in homes under
construction.
Site Work/Field Operations Construction Schedules
It is estimated that a conventional home could be built in 145 days. The use of “Helios’s”
prefabricated module and earth sheltering designs will allow a 22 day reduction in the
time it takes to finish a home. The construction schedule for a “Helios” home will take
123 days. This is accomplished through elimination of the need for framing exterior first
floor walls, elimination of first floor sheathing and elimination of additional masonry
work. Furthermore, time savings come from reduction in the amount of time required to
install first floor joists, frame first floor walls, rough-in plumbing, rough-in electrical and
basement floor construction. Construction schedules take into account non-working
national holidays.
- 57 -
Subcontract work
“Helios” Home Builders will construct homes based on predetermined energy efficient
designs as indicated previously in this plan. Site work and field operations will be carried
out through extensive use of subcontractors.
Transportation and job site delivery
Transportation of the modules to the job site will be done by truck and truck-mounted
lifting cranes. Diesel fuel costs are variable and the cost will be reevaluated as necessary.
For the purposes of this operating plan the average cost for transportation of the modules
is estimated at $490.00 per module. The cost is based on an estimated average delivery
distance and a crane rental fee. Calculations are shown in Table 7 of Appendix C.
Financials
The first two years of operation will be capital intensive. In fact, most of the money
invested in the company will be used up in the first few months to finance production
facility equipment construction, computer and software and purchasing, form
construction, marketing and construction financing. Additional funding in the form of a
$25,000 loan from the Small Business Administration will help the company overcome a
shortage of cash in June of 2007 and again in January of 2008. Following the completion
and sale of the first home in July of 2007 the financial picture will begin improving. First
and second year cash flows are shown in Figures 6 and 7 of Appendix C. Balance sheets,
- 58 -
Cash Flow Statements and Income Statements are included for years 1 through 5 in
Appendix B.
The company will turn a net profit from operations in the second quarter of 2009, after
two and half years of operation. The initial investment will be recovered in the third
quarter of 2010 after three and a half years of operation. Sales and Profit Projections for
years 1 through 5 are shown in Figure 8 of Appendix C.
- 59 -
Exit Plan and Future Plans
When the company reaches a healthy and sustainable operating level the owners will
make an attempt to mitigate some of the risk they are carrying. This could be achieved in
many different ways, such as taking on additional partners, selling a portion of the
business to institutional investors or with the implementation of an employee stock option
program better known as ESOP. The company’s preference at this stage is the ESOP
option. “Helios” believes that while it is true that employees assume a much lower risk
than the owners of the company, they are nevertheless always shouldering some form and
portion of risk as well. It is important that the company recognizes this as a contribution
and at least offers a fractional ownership program to its employees.
- 60 -
Funding
Sources of Funding
To purchase necessary equipment, secure a production facility and begin operations, an
initial amount of $130,000 will be required. This initial funding will come from a
combination of available sources. The most significant source is of course will be the
contribution of $130,000 from the personal savings of the participating partners. In
particular $100,000 will be contributed by Mr. L.C., and equity investments will be made
in the amounts of $10,000 by Miss G.-O, $10,000 by Mr. C. C. and $10,000 by Mr. N. P.
A loan through the Small Business Administration 7(a) program will provide an
additional $25,000 in June of 2007 and $25,000 in January of 2008. The terms of these
loans are: borrowing term is 5 years, the interest rate is negotiable, but the maximum is
pegged at the Prime Rate plus 2.25 percent for loans with a maturity less than 7 years.
The current prime rate is at 7.5 percent so the SBA 7(a) loan’s rate will be capped at 9.75
percent. This rate will be used for the purposes of this operating plan.
- 61 -
Bibliography
1. Designing & building a solar house: Your place in the sun by Donald Watson
2. The Passive Solar House (Real Goods Independent Living Books) by James
Kachadorian
3. The Solar House: Passive Heating and Cooling by Daniel D., Ph.D. Chiras
4. The Successful Business Plan: Secrets and Strategies 4th Edition by Rhonda
Abrams, Eugene Kleiner
5. Project Management: A Systems Approach to Planning, Scheduling, and
Controlling by Harold Kerzner
6. Energy Alternatives; Renewable Energy Buyers Guide and Product Catalogue,
12th Edition
7. Start-up companies : planning, financing, and operating the successful business /
planned and edited by Richard D. Harroch., New York, N.Y. : Law Journal
Seminars-Press, 1985
8. Innovations at the cutting edge, new ideas in manufactured housing. GPO, 1999.
9. Manufactured housing: regulation, design innovations, and development options /
Welford Sanders, Chicago, IL: American Planning Association, c1998.
10. Affordable passive solar homes: low-cost, compact designs / by Richard L.
Crowther, Denver, Colo.: SciTech Pub. Co., c1984
11. Convincing the home builder to build solar homes: evaluation of the passive solar
workshop for builders / Susan Klein; prepared for the U.S. Department of
Energy. Golden, Colo.: Solar Energy Research Institute; Springfield, VA:
Available from National Technical Information Service, 1981.
- 62 -
12. EPA's energy star homes marketing toolkit, GPO, 2000.
13. Marketing solar energy innovations / edited by Avraham Shama, New York, N.Y.
: Praeger, 1981
14. The solar decision book of homes: a guide to designing and remodeling for solar
heating / Richard H. Montgomery, with Walter F. Miles, New York: Wiley,
c1982.
15. Successful solar energy solutions by Spruille Braden, III and Kathleen Steiner,
with Alvin R. O'Konski, New York: Van Nostrand Reinhold, c1980.
16. Earth sheltered homes: plans and designs, D Ahrens, T Ellison, R Sterling - 1981
- New York: Van Nostrand Reinhold Co.
17. Estimating Construction Costs, 4th ed., Garold D. Oberlender, R. L. Peurifoy.
McGraw-Hill.
18. Photovoltaic and Solar-Thermal Technologies in Residential Building Codes,
Tackling Building Code Requirements to Overcome the Impediments to
Applying New Technologies David Wortman and Linda Echo-Hawk, National
Renewable Energy Laboratory.
- 63 -
References
1. http://www.bea.gov/bea/dn/gdpchg.xls as viewed on February 28, 2006
2. http://www.bea.gov/bea/newsrelarchive/2005/gsp1005.xls tables, 1 and 2a, as
viewed on February 28, 2006
3. http://www.agc.org/galleries/economics/QuickFacts021006.doc as viewed on
February 28, 2006
4. http://www.census.gov/const/www/C40/table2.html#monthly as viewed on
March 1, 2006
5. http://www.energystar.gov/index.cfm?fuseaction=NEW_HOMES_PARTNERS.s
howHomesResults&partner_type_id=SHB&s_code=ALL, as viewed on March 1,
2006
6. Energy Management ant Investor Returns: The Real Estate Sector. Leaders in
Energy Management Achieve Superior Stock Market Returns in the Real Estate
Sector, Innovest Strategic Value Advisors, October 2002.
7. Hicks, W. Thomas and von Neida, Bill, (2000), An Evaluation of America’s First
Energy Star Buildings: The Class of 1999, Environmental Protection Agency.
8. “Better B2B selling,” The McKinsey Quarterly, 2005, Number 3
9. http://www.irs.gov/pub/irs-drop/n-06-27.pdf, as viewed on March 2, 2006
10. 11. 15. 1995-2005: A Decade of Change Home Building with Energy Star®,
Market Transformation through Effective Public-Private Partnerships,
Environmental Protection Agency, 430-R-05-002 January 2005.
12. “Retailing: What’s working online,” The McKinsey Quarterly, 2005, Number 3
- 64 -
13. Taking Shelter from the Storm.: Building a Safe Room Inside your House.
FEMA Mitigation Directorate, Fist Edition, 1998.
13. http://www.energystar.gov/ia/partners/manuf_res/CasaHomeMarketingLeverages
.pdf, as viewed on March 2, 2006
14. http://www.census.gov/const/price_sold.pdf, as viewed on March 6, 2006
16. http://www.kff.org/insurance/7315/sections/upload/7316.pdf, as viewed on
March 16, 2006
- 65 -
Appendix A – Glossary
active solar system – a solar system or cooling system that relies on external mechanical
power to move collected heat
building envelope – the exterior components of construction that enclose interior,
conditioned spaces through which thermal energy can be transferred.
convection – heat transfer by movement of a fluid (liquid, gas or vapor) between the
fluid and a surface or within the fluid itself.
direct gain – solar radiation directly intercepting or entering a building.
earth sheltering - the architectural practice of using earth for external thermal mass
against building walls.
envelope – an additional, thermal shell around the architecture that protects from heat
losses or gains and acts as a thermal intervener.
life-cycle costing (life cycle cost analysis) – the total cost of a system over its
economically useful life. Includes the appropriate summation of all costs expected to be
incurred as a result of choosing and implementing any particular plan and design over the
life of the building.
natural ventilation – supplying and removing air by natural means (such as by winds or
by natural convection) to or from any space.
passive solar system – a solar heating or cooling system that does not rely on external
mechanical power to move the collected solar heat through the building.
thermal mass – a substance (liquid or solid) in which heat energy is stored. Also, it is the
amount of potential heat storage capacity available in a given assembly or system.
- 66 -
Appendix B – Financial Statements
- 67 -
Income Statements
Income Statements 2007 2008 2009 2010 2011 TOTAL TOTAL TOTAL TOTAL TOTAL INCOME Gross Sales $1,085,184 $2,289,952 $3,624,192 $5,735,826 $9,077,805
(Commissions) $43,407 $91,598 $144,968 $229,433 $363,112(Returns and
allowances) $21,704 $45,799 $72,484 $114,717 $181,556
Net Sales $1,020,073 $2,152,555 $3,406,740 $5,391,676 $8,533,137(Cost of Goods) $868,147 $1,831,962 $2,899,354 $4,588,661 $7,262,244
GROSS PROFIT $151,926 $320,593 $507,387 $803,016 $1,270,893 EXPENSES - General
and Administrative
Salaries and wages $140,400 $187,740 $239,463 $327,839 $390,907Employee benefits $35,000 $47,040 $61,466 $98,345 $121,161Payroll taxes $19,445 $26,002 $33,166 $45,406 $54,141Professional services $4,000 $4,200 $4,413 $4,641 $4,862Marketing and
advertising $16,657 $17,490 $18,365 $19,283 $20,247
Rent $36,000 $36,000 $36,000 $36,000 $36,000Equipment rental $0 $0 $0 $0 $0Maintenance $1,200 $1,200 $1,200 $1,200 $1,200Depreciation $3,303 $3,303 $3,303 $3,303 $3,303Insurance $2,400 $2,400 $2,400 $2,400 $2,400Telephone service $3,600 $3,600 $3,600 $3,600 $3,600Utilities $12,000 $12,000 $12,000 $12,000 $12,000Office supplies $3,600 $3,600 $3,600 $3,600 $3,600Postage and shipping $900 $900 $900 $900 $900Travel $1,200 $1,200 $1,200 $1,200 $1,200Entertainment $0 $0 $0 $0 $0Interest on loans $1,366 $2,021 $1,581 $1,095 $561Business and
Professional Licenses $990 $0 $990 $0 $990
Contingency $1,800 $1,800 $1,800 $1,800 $1,800TOTAL EXPENSES $283,861 $350,495 $425,445 $562,612 $658,871Net income before
taxes -$131,935 -$29,902 $81,942 $240,404 $612,022
Provision for taxes on income $0 $0 $20,486 $60,101 $153,006
NET PROFIT -$131,935 -$29,902 $61,457 $180,303 $459,017
- 68 -
Cash Flow Statements
Cash Flow 2007 2008 2009 2010 2011 TOTAL TOTAL TOTAL TOTAL TOTAL CASH RECEIPTS Income from Sales
Cash Sales $1,085,184 $2,289,952 $3,624,192 $5,735,826 $9,077,805Collections $0 $0 $0 $0 $0
Total Cash from Sales $1,085,184 $2,289,952 $3,624,192 $5,735,826 $9,077,805Income from Financing
Interest Income $678 $1,376 $3,405 $11,539 $37,237Loan Proceeds $25,000 $25,000 $0 $0 $0Equity Capital Investments $30,000 $0 $0 $0 $0
Total Cash from Financing $55,678 $26,376 $3,405 $11,539 $37,237Other Cash Receipts $8,000 $16,000 $24,000 $36,000 $54,000
TOTAL CASH RECEIPTS $1,148,862 $2,332,328 $3,651,597 $5,783,365 $9,169,042
CASH DISBURSEMENTS Inventory $868,371 $1,793,880 $2,779,324 $4,306,438 $6,672,612Operating Expenses $279,192 $345,172 $420,561 $558,213 $655,007Commissions/Returns &
Allowances $65,111 $137,397 $217,452 $344,150 $544,668
Capital Purchases $22,267 $0 $0 $0 $0Loan Payments $3,697 $12,675 $12,675 $12,675 $12,675Income Tax Payments $0 $0 $25,796 $63,336 $152,786Investor Dividend Payments $0 $0 $0 $0 $0Owner's Draw $0 $0 $0 $0 $0
TOTAL CASH DISBURSEMENTS $1,238,638 $2,289,124 $3,455,807 $5,284,812 $8,037,748
NET CASH FLOW -$89,776 $43,204 $195,789 $498,554 $1,131,294
Opening Cash Balance $120,000 $30,224 $73,428 $269,217 $767,771
Cash Receipts $1,148,862 $2,332,328 $3,651,597 $5,783,365 $9,169,042Cash Disbursements $1,238,638 $2,289,124 $3,455,807 $5,284,812 $8,037,748
ENDING CASH BALANCE $30,224 $73,428 $269,217 $767,771 $1,899,065
- 69 -
Balance Sheets
Helios Home Builders
First Quarter 2007
ASSETS Current Assets
Cash $57,545 Accounts Receivable $0 Inventory $0 Other Current Assets $0 Total Current Assets $57,545
Fixed Assets Land $0 Facilities $0 Equipment $9,105 Computers & Telecommunications $13,162
(Less Accumulated Depreciation) $826 Total Fixed Assets $21,441
Other Assets $0 TOTAL ASSETS $78,986
LIABILITIES Current Liabilities
Short-Term Notes Payable $0 Income Taxes Due $0 Other Current Liabilities $0 Total Current Liabilities $0
Long-Term Liabilities
Long-Term Notes Payable $0 Other Long-Term Liabilities $0 Total Long-Term Liabilities $0
NET WORTH
Paid-In Capital $150,000 Retained Earnings -$71,014 Total Net Worth $78,986
TOTAL LIABILITIES AND NET WORTH $78,986
- 70 -
Helios Home Builders
Second Quarter 2007
ASSETS Current Assets
Cash $12,563 Accounts Receivable $0 Inventory $0 Other Current Assets $0 Total Current Assets $12,563
Fixed Assets Land $0 Facilities $0 Equipment $9,105 Computers & Telecommunications $13,162
(Less Accumlated Depreciation) $1,651 Total Fixed Assets $20,616
Other Assets $0 TOTAL ASSETS $33,179
LIABILITIES Current Liabilities
Short-Term Notes Payable $4,112 Income Taxes Due $0 Other Current Liabilities $0 Total Current Liabilities $4,112
Long-Term Liabilities
Long-Term Notes Payable $20,563 Other Long-Term Liabilities $0 Total Long-Term Liabilities $20,563
NET WORTH
Paid-In Capital $150,000 Retained Earnings -$141,496 Total Net Worth $8,504
TOTAL LIABILITIES AND NET WORTH $33,179
- 71 -
Helios Home Builders
Third Quarter 2007
ASSETS Current Assets
Cash $21,371 Accounts Receivable $0 Inventory $112 Other Current Assets $0 Total Current Assets $21,483
Fixed Assets Land $0 Facilities $0 Equipment $9,105 Computers & Telecommunications $13,162
(Less Accumlated Depreciation) $2,477 Total Fixed Assets $19,790
Other Assets $0 TOTAL ASSETS $41,273
LIABILITIES Current Liabilities
Short-Term Notes Payable $4,213 Income Taxes Due $7,162 Other Current Liabilities $0 Total Current Liabilities $11,375
Long-Term Liabilities
Long-Term Notes Payable $19,471 Other Long-Term Liabilities $0 Total Long-Term Liabilities $19,471
NET WORTH
Paid-In Capital $150,000 Retained Earnings -$139,574 Total Net Worth $10,426
TOTAL LIABILITIES AND NET WORTH $41,273
- 72 -
Helios Home Builders
Fourth Quarter 2007
ASSETS Current Assets
Cash $30,224 Accounts Receivable $0 Inventory $223 Other Current Assets $0 Total Current Assets $30,447
Fixed Assets Land $0 Facilities $0 Equipment $9,105 Computers & Telecommunications $13,162
(Less Accumlated Depreciation) $3,303 Total Fixed Assets $18,964
Other Assets $0 TOTAL ASSETS $49,411
LIABILITIES Current Liabilities
Short-Term Notes Payable $4,317 Income Taxes Due $14,329 Other Current Liabilities $0 Total Current Liabilities $18,645
Long-Term Liabilities
Long-Term Notes Payable $18,352 Other Long-Term Liabilities $0 Total Long-Term Liabilities $18,352
NET WORTH
Paid-In Capital $150,000 Retained Earnings -$137,587 Total Net Worth $12,413
TOTAL LIABILITIES AND NET WORTH $49,411
- 73 -
Helios Home Builders
2008 ASSETS Current Assets
Cash $73,428 Accounts Receivable $0 Inventory -$37,858 Other Current Assets $0 Total Current Assets $35,570
Fixed Assets Land $0 Facilities $0 Equipment $9,105 Computers & Telecommunications $13,162
(Less Accumulated Depreciation) $6,606 Total Fixed Assets $15,661
Other Assets $0 TOTAL ASSETS $51,231
LIABILITIES Current Liabilities
Short-Term Notes Payable $9,252 Income Taxes Due $14,329 Other Current Liabilities $0 Total Current Liabilities $23,580
Long-Term Liabilities
Long-Term Notes Payable $30,022 Other Long-Term Liabilities $0 Total Long-Term Liabilities $30,022
NET WORTH
Paid-In Capital $150,000 Retained Earnings -$152,372 Total Net Worth -$2,372
TOTAL LIABILITIES AND NET WORTH $51,231
- 74 -
Helios Home Builders 2009
ASSETS Current Assets
Cash $269,217 Accounts Receivable $0 Inventory -$157,888 Other Current Assets $0 Total Current Assets $111,329
Fixed Assets Land $0 Facilities $0 Equipment $9,105 Computers & Telecommunications $13,162
(Less Accumulated Depreciation) $9,909 Total Fixed Assets $12,358
Other Assets $0 TOTAL ASSETS $123,688
LIABILITIES Current Liabilities
Short-Term Notes Payable $10,195 Income Taxes Due $8,558 Other Current Liabilities $0 Total Current Liabilities $18,753
Long-Term Liabilities
Long-Term Notes Payable $19,827 Other Long-Term Liabilities $0 Total Long-Term Liabilities $19,827
NET WORTH
Paid-In Capital $150,000 Retained Earnings -$64,892 Total Net Worth $85,108
TOTAL LIABILITIES AND NET WORTH $123,688
- 75 -
Helios Home Builders
2010 ASSETS Current Assets
Cash $767,771 Accounts Receivable $0 Inventory -$440,111 Other Current Assets $0 Total Current Assets $327,660
Fixed Assets Land $0 Facilities $0 Equipment $9,105 Computers & Telecommunications $13,162
(Less Accumlated Depreciation) $13,212 Total Fixed Assets $9,055
Other Assets $0 TOTAL ASSETS $336,716
LIABILITIES Current Liabilities
Short-Term Notes Payable $11,235 Income Taxes Due $4,977 Other Current Liabilities $0 Total Current Liabilities $16,211
Long-Term Liabilities
Long-Term Notes Payable $8,592 Other Long-Term Liabilities $0 Total Long-Term Liabilities $8,592
NET WORTH
Paid-In Capital $150,000 Retained Earnings $161,912 Total Net Worth $311,912
TOTAL LIABILITIES AND NET WORTH $336,716
- 76 -
Helios Home Builders
2011 ASSETS Current Assets
Cash $1,899,065 Accounts Receivable $0 Inventory -$1,029,743 Other Current Assets $0 Total Current Assets $869,322
Fixed Assets Land $0 Facilities $0 Equipment $9,105 Computers & Telecommunications $13,162
(Less Accumlated Depreciation) $16,515 Total Fixed Assets $5,753
Other Assets $0 TOTAL ASSETS $875,075
LIABILITIES Current Liabilities
Short-Term Notes Payable $8,592 Income Taxes Due $4,977 Other Current Liabilities $0 Total Current Liabilities $13,569
Long-Term Liabilities
Long-Term Notes Payable $0 Other Long-Term Liabilities $0 Total Long-Term Liabilities $0
NET WORTH
Paid-In Capital $150,000 Retained Earnings $711,506 Total Net Worth $861,506
TOTAL LIABILITIES AND NET WORTH $875,075
- 77 -
Appendix C - Figures and Tables
- 78 -
Missouri and Kansas New Housing Permits
0
1000
2000
3000
4000
5000
6000
Jan-04 Jul-04 Jan-05 Jul-05 Jan-06
Month
New
hou
sing
Uni
ts A
utho
rized
Figure 1. Missouri & Kansas New Housing Permits. Source: Census Bureau.
New Homes - Midwest
01000020000300004000050000600007000080000
unde
r14
9,99
9
150,
000-
199,
999
200,
000-
299,
999
300,
000-
499,
999
500,
000-
over
Sales Price
Num
ber o
f New
Hom
es
Figure 2. Midwest Region New Housing Prices. Source: Census Bureau.
- 79 -
Kansas and Missouri
0
200
400
600
800
1000
1200
2005 2006 2007 2008 2009 2010 2011
Year
Num
ber o
f Ene
rgy
Star
Hom
es
Figure 3. Projected Missouri & Kansas Energy Star® New Construction.
- 80 -
Figure 4. Drawing of Type 1 Module.
- 81 -
Figure 5. Drawing of Production Facility.
- 82 -
Janu
ary
Febr
uary
Mar
ch
Apr
il
May
June
July
Aug
ust
Sept
embe
r
Oct
ober
Nov
embe
r
Dec
embe
r
-$40,000
-$20,000
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
1st-Year Cash Flow (2007)
Net Cash FlowEnding Cash Balance
Figure 6. First Year Cash Flows.
Janu
ary
Febr
uary
Mar
ch
Apr
il
May
June
July
Aug
ust
Sept
embe
r
Oct
ober
Nov
embe
r
Dec
embe
r
-$40,000
-$20,000
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
2nd-Year Cash Flow (2008)
Net Cash FlowEnding Cash Balance
Figure 7. Second Year Cash Flows.
- 83 -
2007 2008 2009 2010 2011-$1,000,000
$0
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$6,000,000
$7,000,000
$8,000,000
$9,000,000
$10,000,000
5-Year Financials At-A-Glance
Gross SalesGross ProfitNet Profit
Figure 8. Five Year Sales and Profit Projections.
- 84 -
Cost of Participating in the 2006 Greater Kansas City Home Show
Items Cost QuantityDiscount
(%) Total Booth Rental (20x30) $4,725.00 1 10 $ 4,252.50 Corner charges $100.00 2 0 $ 200.00 Phone Line $50.00 1 0 $ 50.00 Furniture Rental $200.00 5 0 $ 1,000.00 Module Model Construction $2,000.00 1 0 $ 2,000.00 Meals $8.00 8 0 $ 64.00 Transportation Costs $0.45 160 0 $ 71.20 Totals $ 7,637.70 Annual Price Percent Increase 5 % 2007 Participation Cost $ 8,019.59 2008 Participation Cost $ 8,420.56 2009 Participation Cost $ 8,841.59 2010 Participation Cost $ 9,283.67 2011 Participation Cost $ 9,747.86
Table 1. Cost of Participating in the Greater KC Area Home Show.
- 85 -
Cost of Placing advertisement in the Kansas City Star's "House and Home"
Items Cost Quantity Discount
(%) Total Ad for 1/4 Page Horizontal, 12" x 5" $2,861.25 1 0 $ 2,861.25 4-Color $265.00 1 0 $ 265.00 Totals $ 3,126.25 Annual Price Percent Increase 5 % Annual Monthly 2007 Ad Cost $ 3,282.56 $ 273.55 2008 Ad Cost $ 3,446.69 $ 287.22 2009 Ad Cost $ 3,619.03 $ 301.59 2010 Ad Cost $ 3,799.98 $ 316.66 2011 Ad Cost $ 3,989.98 $ 332.50
Table 2. Cost of Placing Advertisement in KC Star’s “House and Home”.
- 86 -
Cost of Website
Items Cost QuantityDiscount
(%) Total Website Listing and Maintenance $1,200.00 4 0 $ 4,800.00 Renewal Fee $200.00 1 0 $ 200.00 Change Fee $100.00 1 0 $ 100.00 Totals $ 5,100.00 Annual Price Percent Increase 5 % Annual Monthly 2007 Website Cost $ 5,355.00 $ 446.25 2008 Website Cost $ 5,622.75 $ 468.56 2009 Website Cost $ 5,903.89 $ 491.99 2010 Website Cost $ 6,199.08 $ 516.59 2011 Website Cost $ 6,509.04 $ 542.42
Table 3. Cost of listing and maintaining a company website.
- 87 -
Module Weight Calculation Unit Density of Concrete = 4050 pounds/cubic yard
Width Length HeightWall Thickness
(feet) (feet) (feet) (inches) Dimensions 8 14 8 6 Volume Weight
Cubic Yards Pounds
Long Walls (2) 2.07 8383.5 Short Walls (2) 1.19 4819.5 Floor Slab 2.07 8383.5 Roof Slab 2.07 8383.5 Door Openings (2) 0.78 -3159 Total 6.62 26811
Table 4. Module Weight Calculations
- 88 -
Form Construction Material
Quantity Unit Unit Cost Total
Plywood 576 sq.ft. 0.44 $ 253.44 nails 576 each 0.05 $ 28.80 form ties 92 each 0.39 $ 35.88 Total $ 318.12 Labor
Production Rate Unit Quantity Unit
Labor (hrs) Cost Total
Carpenter 0.02 hrs/sq.ft. 576 sq.ft. 11.52 $ 30.00 $ 345.60
Helper 0.015 hrs/sq.ft. 576 sq.ft. 8.64 $ 22.45 $ 193.97
Total $ 539.57
Salvage Value 0 Number of Uses 10 Cost 85.77 $/module
Table 5. Form Production Cost Calculations.
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Module Production Costs Material Quantity Unit Unit Cost Total Concrete 6.62 C.Y. 70.00 $ 463.40 Reinforcing Steel 385 lbs 0.40 $ 154.00 Welded Wire 576 sq.ft. 0.10 $ 57.60 Electrical Items
Tubing 176 feet 1.34 $ 235.84 Box 10 each 0.19 $ 1.90
Lifting anchors 4 each 16.42 $ 65.68 Plumbing Items 44 feet 0.37 $ 16.28 Subtotal $ 994.70 Labor
Production Rate Unit Quantity Unit Labor(hrs) Cost Total
Form A&R Helper 0.035 hrs/sq.ft. 20.16 sq.ft. 0.7056 $ 20.00 $ 14.11
Carpenter 0.03 hrs/sq.ft. 17.28 sq.ft. 0.5184 $ 30.00 $ 15.55 Electrical 20 feet/hr 100 ft 5 $ 30.73 $ 153.65 Plumbing 10 feet/hr 40 ft 4 $ 30.04 $ 120.16 Reinforcement
Laborer 18 hrs/Ton 0.193 Tons 3.465 $ 20.00 $ 69.30 Steel Setter 14 hrs/Ton 0.193 Tons 2.695 $ 25.60 $ 68.99
Welded Wire 0.0025 hrs/sq.ft. 576 sq.ft. 1.44 $ 20.00 $ 28.80 Concrete pour
Foreman 0.07 hrs/C.Y. 6.62 C.Y. 0.4634 $ 30.00 $ 13.90 Carpenter 0.07 hrs/C.Y. 6.62 C.Y. 0.4634 $ 30.00 $ 13.90
Laborer 0.5 hrs/C.Y. 6.62 C.Y. 3.31 $ 20.00 $ 66.20 Finishing 0.01 hrs/sq.ft. 576 sq.ft. 5.76 $ 10.00 $ 57.60 Subtotal $ 622.17
Table 6. Module Production Cost Calculations.
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Shipping and Handling Costs Cost Per Mile $ 0.75 Average Delivery Distance (miles) 120 Transportation Cost $ 90.00 Crane rental $ 400.00 Subtotal $ 490.00
Table 7. Module Transportation Cost Calculations.
Module Costs Form Cost $ 85.77 Material Cost $ 994.70 Labor Cost $ 622.17 Shipping and Handling $ 490.00 Total $ 2,192.64
Table 8. Module Total Production Cost Calculations.
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Production Area Calculations Available Area = 5000 sq.ft. Width Requirements Width = 8 feet Additional Width Requirements = 2 x 5 feet Total width of Production area = 18 feet Length Requirements Length = 14 feet Additional Length Requirements = 2 x 5 feet Total Length of Production area = 24 feet Single Module Area = 112 sq.ft. Production Area per module = 432 sq.ft. Production Line (Maximum 100 feet Long) Width = 18 feet Length = 24 feet Modules per Line = 4 Number of Lines = 1 Total Production Area Required = 1728 sq.ft. Office Area = 348 sq.ft. Storage = 2924 sq.ft.
Table 9. Production Area Calculations
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Production Line Cost Calculation Linear Density of 112 lb Rail = 37.3 lbs/ft Width Length (feet) (feet) Dimensions 4.708 120
Quantity Unit Unit Cost Cost
Ties 60 each 30.00 $ 1,800.00 Spikes 240 each 0.50 $ 120.00 Rail 8952 lbs 0.30 $ 2,685.60 Labor 50 hrs 30.00 $ 1,500.00 Total $ 6,105.60
Table 10. Production Rail Line Cost Calculations
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Kansas Missouri
Year Quarter Annualized % Increase
Average Annual
Annualized % Increase
Average Annual
2002 1 4.67 5.91 2002 2 4.44 5.79 2002 3 4.44 5.55 2002 4 4.30 4.46 5.76 5.75 2003 1 3.77 5.00 2003 2 3.34 4.34 2003 3 2.96 4.13 2003 4 4.34 3.61 6.02 4.87 2004 1 4.57 6.16 2004 2 5.02 6.87 2004 3 6.11 8.97 2004 4 5.36 5.26 7.26 7.32 2005 1 5.16 7.94 2005 2 5.85 8.27 2005 3 5.29 6.87 2005 4 4.77 5.27 7.20 7.57
02-05 Average Annual Value Increase = 5.51 %
Table 11. Average Historic Home Value Increases for Kansas and Missouri.
Year Projected Midwest Home Values 2005 $ 243,700 2006 $ 257,128 2007 $ 271,296 2008 $ 286,244 2009 $ 302,016 2010 $ 318,657 2011 $ 336,215
Table 12. Projected Midwest Home Values.
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Professional Services 2007 2008 2009 2010 2011
General Attorneys $1,000 $1,050 $1,106 $1,158 $1,216 Accountants $2,400 $2,520 $2,646 $2,788 $2,917 Management consultants $0 $0 $0 $0 $0 Industry specialists $0 $0 $0 $0 $0 Technology consultants $600 $630 $661 $695 $729 Total Costs $4,000 $4,200 $4,413 $4,641 $4,862
GRAND TOTAL COSTS $4,000 $4,200 $4,413 $4,641 $4,862
Table 13. Annual Professional Services Budget.
Sales Projections 2007 2008 2009 2010 2011 TOTAL TOTAL TOTAL TOTAL TOTAL
Finished Energy Efficient Home Unit Volume 4 8 12 18 27 Unit Price $271,296 $286,244 $302,016 $318,657 $336,215 Gross Sales $1,085,184 $2,289,952 $3,624,192 $5,735,826 $9,077,805
(Commissions) $43,407 $91,598 $144,968 $229,433 $363,112 (Returns and Allowances) $21,704 $45,799 $72,484 $114,717 $181,556
Net Sales $1,020,073 $2,152,555 $3,406,740 $5,391,676 $8,533,137 (Cost of Goods Sold) $868,147 $1,831,962 $2,899,354 $4,588,661 $7,262,244
GROSS PROFIT $151,926 $320,593 $507,387 $803,016 $1,270,893
Totals for All Product Lines Total Unit Volume 4 8 12 18 27 Total Gross Sales $1,085,184 $2,289,952 $3,624,192 $5,735,826 $9,077,805
(Total Commissions) $43,407 $91,598 $144,968 $229,433 $363,112 (Total Return & Allowances) $21,704 $45,799 $72,484 $114,717 $181,556
Total Net Sales $1,020,073 $2,152,555 $3,406,740 $5,391,677 $8,533,137 (Total Cost of Goods Sold) $868,147 $1,831,962 $2,899,354 $4,588,661 $7,262,244
TOTAL GROSS PROFIT $151,926 $320,593 $507,387 $803,016 $1,270,893
Table 14. Annual Sales Projections.
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Staffing Budget 2007 2008 2009 2010 2011 TOTAL TOTAL TOTAL TOTAL TOTAL
Management # Employees 1.00 1.00 1.00 1.00 1.00 Salary/Wages $36,000 $37,800 $39,690 $41,675 $43,758 Benefits $7,000 $7,840 $8,781 $9,834 $11,015 Payroll Taxes $4,986 $5,235 $5,497 $5,772 $6,061 Total Costs $47,986 $50,875 $53,968 $57,281 $60,833
Administrative/Support
# Employees 1.00 1.00 1.00 2.00 2.00 Salary/Wages $18,000 $18,900 $19,845 $41,675 $21,879 Benefits $7,000 $7,840 $8,781 $19,669 $22,029 Payroll Taxes $2,493 $2,618 $2,749 $5,772 $6,061 Total Costs $27,493 $29,358 $31,374 $67,115 $71,848
Production
# Employees 2.00 2.00 2.00 4.00 4.00 Salary/Wages $48,000 $50,400 $52,920 $111,132 $29,172 Benefits $14,000 $15,680 $17,562 $39,338 $44,059 Payroll Taxes $6,648 $6,980 $7,329 $15,392 $16,161 Total Costs $68,648 $73,060 $77,811 $165,862 $176,909
Engineers
# Employees 1.00 2.00 3.00 3.00 4.00 Salary/Wages $38,400 $80,640 $127,008 $133,358 $46,675 Benefits $7,000 $15,680 $26,342 $29,503 $44,059 Payroll Taxes $5,318 $11,169 $17,591 $18,470 $25,858 Total Costs $50,718 $107,489 $170,941 $181,332 $256,618
TOTAL
# Employees 5 6 7 10 11 Salary/Wages $140,400 $187,740 $239,463 $327,839 $390,907 Benefits $35,000 $47,040 $61,466 $98,345 $121,161 Payroll Taxes $19,445 $26,002 $33,166 $45,406 $54,141
GRAND TOTAL COSTS $194,845 $260,782 $334,094 $471,590 $566,208
Table 15. Annual Staffing Budget.
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Computer Hardware/Software Price Month Year Life Salvage
Dell Inspiron Notebooks (3) $3,807 Jan 2007 5 $450CybertronPC Tower Server (1) $906 Jan 2007 5 $200Sanyo (964x544) projector (1) $500 Jan 2007 5 $100D-Link Super G Wireless Router (1) $80 Jan 2007 5 $10HP Lasejet 1320 Laser Printer (1) $287 Jan 2007 5 $50Canon 13 ppm Copier (1) $730 Jan 2007 5 $200HP Scanjet 5590 Scanner (1) $254 Jan 2007 5 $50HP Design Jet 800 Lg Format Plotter (1) $3,299 Jan 2007 5 $600AutoCAD LT (1) $879 Jan 2007 5 $0Microsoft Office 2003 Professional (3) $1,500 Jan 2007 5 $0Peachtree Complete Accounting 2006 $320 Jan 2007 5 $0
Telecommunications Telephone system $400 Jan 2007 5 $10Fax Machine $200 Jan 2007 5 $30
Total
$13,162
$1,700
Table 16. Technology Budget.
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Assumptions
Key financial assumptions include earning 2.00 percent on the corporate interest bearing
account, a 25 percent tax rate on net income, and a 13.85 percent withholding for payroll
taxes.
As far as personnel goes, it is assumed that an annual salary increase of 5 percent is
sufficient for planning purposes. The initial cost of health insurance and other benefits is
estimated at $7,000 for each employee per year with an allowance for an annual
percentage increase of 12 percent.
In housing affordability and utility cost savings calculations a 6.50 percent, 30-year fixed
rate mortgage was used. This rate was the average for the US on March 21, 2006. Other
assumptions made in affordability calculations include that the down payment will cover
and offset the closing costs.
It is assumed that home values for Missouri and Kansas will continue to increase for the
duration of the planning period. This plan uses an average value of 5.51 percent which
was the calculated average for the period 2002-2005. It is also assumed that the $2,000
IRS Tax credit for Energy Star® homes will be renewed past its 2008 expiration date.
All home sales will be made through Real Estate agents. It is assumed that their
commission cost will be 4 percent of the sale price.
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Miscellaneous Expense Assumptions
It is assumed that Business and Professional license fees will remain constant for the
duration of the plan.
A 5 percent annual increase is assumed for the costs of participating in the Greater
Kansas City Area Home Show, placing ads in the Kansas City Star, and website listing
and maintenance. Client Entertainment expenses are estimated at $500 per year.
A 2 percent of sale price loss due to theft, damage and unforeseen repair work is included
in the plan.
A mileage rate of 44.5 cents per mile for 2006 according to IRS guidelines.
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